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State to merge three finance institutions


The National Treasury building in Nairobi. There is a bid to revive State entities that offer affordable credit. FILE PHOTO | NMG

The Treasury is at an advanced stage of merging several development finance institutions it owns to form the Kenya Development Bank – with potential for loss of jobs.

The institutions to be consolidated include the Industrial and Commercial Development Corporation (ICDC), IDB Capital, and Tourism Finance Corporation (TFC).

The intention is to have the institutions finance development projects by leveraging on a stronger entity with a bigger capital base as compared to the disparate entities that are currently relatively weak.

“The specific restructuring initiatives will include merging of the Industrial and Commercial Development Corporation (ICDC) with the Industrial Development Bank (IDB) and the Tourism Finance Corporation (TFC) to create the Kenya Development Bank with enhanced capacity to meet the financing requirements of key sector; and implementation of initiatives to address the challenges of government investments in the banking sector,” said the Treasury in budget documents filed for Parliamentary review.

“The merging process of ICDC, TFC and IDB is at an advanced stage.“

In a single stroke, the Treasury is hoping to bring back the bygone era when development finance for projects with lengthy payback periods was a key mandate of the State.

Top on the agenda of the planned financing institution will be the “Big Four” projects that include housing, universal healthcare, food security and manufacturing.

Many of the institutions to be merged have declined over the years. The main one has been the ICDC whose life stretches back to 1954 when it was founded as the Industrial Development Corporation with the intention to give equity funding to investors.

Latest available data, which is for 2017, shows that the ICDC pretax profit was nearly just a third (Sh497 million) of what it was in 2015 (Sh1.52 billion) while its staff costs rose to Sh213.3 million (in 2017) compared to Sh196.7 million in 2015. Return on assets shrunk to two per cent in 2017 compared to six per cent in 2015.

In the same vein of reviving State entities that offer affordable credit, the Treasury intends to reform the Agricultural Finance Corporation (AFC) to help deliver on its mandate of ensuring food and nutrition security within “The Big Four” Plan through provision of cheap credit to farmers.